2021 (1) TMI 291 - AT - Income Tax

Disallowance of business loss - assessee is still in the process of setting up of business and therefore the business of the assessee has not commenced during the year - HELD THAT - As perused the relevant records especially the documentary evidences filed by the assessee alongwitth the decision of the ITAT, Delhi B Bench in the csse of ITO vs. Amrit Foods (P) Ltd. 1984 (3) TMI 150 - ITAT DELHI-B the assessee has commenced its business in the said assessment year as the assessee had made its sale and purchase i.e. Harpic which is evident from the table below which has already been mentioned in the written submissions. It is well settled law that even a single transaction may constitute business as defined in section 2(13). It is not asking there should be a series of transaction. Both of purchase and the sale to constitute trade. Therefore, we delete the addition in dispute. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the CIT(A).
2. Determination of the commencement of business.
3. Disallowance of business loss claim.
4. Classification of interest and miscellaneous income.
5. Disallowance of carry forward of loss under Section 79 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of the CIT(A):
The Assessee challenged the jurisdiction of the CIT(A), claiming the order dated 17.12.2018 was "without jurisdiction, illegal, bad in law and void ab initio." However, this issue was not elaborated upon in the judgment, suggesting it was not the primary focus of the Tribunal's decision.

2. Determination of the Commencement of Business:
The Assessee argued that its business had commenced during the assessment year 2016-17, evidenced by the purchase and sale of goods (Harpic) in May 2015. The Assessing Officer (AO) and CIT(A) contended that the business had not commenced as there were no significant business transactions beyond the initial purchase and sale. The Tribunal, however, found that even a single transaction could constitute 'business' as defined in section 2(13) of the Income Tax Act, citing the ITAT Delhi decision in ITO vs. Amrit Foods (P) Ltd. The Tribunal concluded that the Assessee had commenced its business during the relevant assessment year.

3. Disallowance of Business Loss Claim:
The AO disallowed the business loss claimed by the Assessee, arguing that the expenses were related to activities prior to the commencement of business. The Tribunal disagreed, noting that the Assessee had made purchases and sales, thereby commencing business operations. Consequently, the Tribunal deleted the disallowance of the business loss.

4. Classification of Interest and Miscellaneous Income:
The AO classified the Assessee's interest and miscellaneous income of ?1,21,659/- under "income from other sources," rather than as part of the business profits. The Tribunal did not specifically address this issue in detail, but by recognizing the commencement of business, it implicitly accepted that such income could be considered as part of the business income.

5. Disallowance of Carry Forward of Loss under Section 79:
The AO invoked Section 79 of the Income Tax Act, 1961, to disallow the carry forward of loss. The Tribunal's recognition of the Assessee's business commencement and the deletion of the disallowance of business loss rendered this issue academic, and it was not adjudicated separately.

Conclusion:
The Tribunal allowed the Assessee's appeal, deleting the disallowance of the business loss and implicitly recognizing the commencement of business operations during the assessment year 2016-17. The decision emphasized that even a single transaction could constitute business, aligning with the precedent set in ITO vs. Amrit Foods (P) Ltd. The other grounds raised by the Assessee were deemed academic and were not adjudicated. The decision was pronounced on 07.01.2021.